Social
security remains a sacred cow, but a sacred cow that is on its last
leg. Expenditures now top receipts by over forty billion dollars and
the losses will mount to the tens of trillions in the next 70 years.
Many politicians, like Nero, smile and fiddle while social security
burns. The more prudent course is to confess that the promise made by
the government was a lie from the start, to adopt a private sector alternative,
and to ween the nation of this weighty burden before it sinks the new
generation in a sea of debt and increased payroll taxes.

Social
security expenditures exceeded social security receipts for the first
time in 2010 by a whopping $49 billion. This year, another $46 billion
will be added to that figure. As the baby boomers continue to create
an enormous financial drain on the system, the nation will be forced
either to increase payroll taxes by 15 to 20% or make drastic cuts in
benefits offered. In short, social security “as we know it,”
the very thing leading proponents of it now tout in Congress as what
they will preserve, cannot be sustained. It will have to change; it
is unaffordable. Once we accept that reality we may maturely address
how it should be changed.

In
the next 73 years, social security and medicare will cost about $103.2
trillion, while receipts from payroll taxes will equal only $57.4 trillion.
To sustain the current system the government will have to add taxes
equal to $45.8 trillion or it will have to cut benefits by that same
amount or rely on a combination of both. If taxes are increased to that
enormous extent on the youthful, productive elements of our society,
the result will be devastating to productivity—resulting in far
greater unemployment, less job creation, and less capital available
to sustain economic growth. In short, we cannot afford to keep social
security “as we know it.”

Consistent
with popular politics of the twentieth century, politicians have promised
greater and greater social security benefits for retirees, expanding
the system from a limited needs based program serving 53,236 Americans
at a cost of $1.3 million to a broad welfare system serving 52 million
Americans at a cost of $615 billion annually. Social security once considered
a welfare benefit for the truly needed is now considered a payment deserved
by all and is a program that endeavors (but fails) to substitute for
a living wage. In every respect, social security has failed to live
up to politicians’ promises. Those who pay into social security
have a horrible rate of return. Those now paying into the system are
likely to receive far less money than if they had either saved or invested
the funds taxed. Those who will soon pay into the system may receive
few, if any, benefits. The system was touted as one financed by payroll
taxes that would redound to the payer’s benefit. In fact, the
money going in is already more than committed to go out to those now
eligible. We are not paying for our own social security retirements.
That too has been a major government deception over the years.

Because
the nation taxed generations of Americans to pay for promised benefits
it now cannot afford to pay, it will have to make those who paid the
tax whole, receiving what they paid in but not the added value falsely
promised by politicians over the decades. Although the nation cannot
afford social security, it must find an alternative way to make whole
those who paid into the system while liberating those now paying from
the obligation to continue buying into the lie.

Certain
immediate reforms could help end social security and replace it with
a private sector alternative. First, the system should immediately be
limited based on need. Individuals who have paid into the system but
due to good fortune lack a financial need for social security should
be excluded from receiving benefits. Instead, they should be reimbursed
the amount taxed them for social security in a series of lump sum annual
payments. Second, those in need should be exempt from all taxation federal,
state, and local; they should be given a lump sum payment from the federal
government equal in amount to the tax they paid in; and they should
be given a combination of reduced payments prospectively until death
and new marketable tax credits. The tax credits would be exchangeable
in the free market for goods, services, or health care. Those who offer
the goods, services, and health care would need to discount the cost
of services to half their normal value in exchange for receipt of the
tax credits which would permit a tax deduction equal in value to the
full cost of the good, service, or health care. This would create a
market conducive to discounting the cost of services to those in need.
Third, those who will not be eligible for social security for five or
more years should be allowed to opt-out of the system in exchange for
a federal lump sum payment equal to the amount of taxes paid into the
system. This opt-out system should be phased in based on need, with
those who the tax burdens most receiving relief first and so on until
all are out of the system.

Timed
to coincide with the phasing out of social security, for the generations
not presently eligible for it, the government should create a platform
for private investment/insurance programs. Those programs would take
what would accept automatic debits from payroll equivalent to social
security payroll taxes now paid and apportion part of it for insurance
to provide compensation in the event of disability encumbering employability,
loss of life, or retirement and apportion the other part for conservative
investment with added insurance against loss. Companies offering these
combinations would be liberated from federal, state, and local taxes
on earnings. The money paid in would be tax deductible to the payer
and provision would be made to permit greater contributions than the
minimum essential required for investment and insurance.

We
have to come to the realization that social security “as we know
it” is unsustainable, that most essential political promises made
to taxpayers about social security were false when made, and that alternative
systems that ween the nation of social security while simultaneously
returning the taxes paid into the system must be considered seriously
and adopted if we are to avoid a dramatic escalation of payroll taxes
or a dramatic loss in benefits or both.

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There
is no sound justification for social security when private investment/insurance
programs could do a better job. Although getting to a free market from
a socialized one requires effort, we can do so through a system that
phases out the former by inviting innovative market solutions to fill
in the gaps. Indeed, given historic returns on investment in the market
(present market excepted), the amount a person would realize in returns
on investment from the system proposed here would likely exceed, and
possibly by many times, the economic value of all benefits social security
now offers beneficiaries.

Jonathan W. Emord
is an attorney who practices constitutional and administrative law before
the federal courts and agencies. Congressman Ron Paul calls Jonathan “a
hero of the health freedom revolution” and says “all freedom-loving
Americans are in [his] debt . . . for his courtroom [victories] on behalf
of health freedom.” He has defeated the FDA in federal court a remarkable
eight times, six on First Amendment grounds, and is the author
of Amazon bestsellers The
Rise of Tyranny, and Global
Censorship of Health Information. He
is also the American Justice columnist for U.S.A. Today Magazine. For
more info visit Emord.com.